Tax competition and harmonization where tastes for public goods differ

Zineb Abidi and Emmanuelle Taugourdeau

International Tax and Public Finance, 2024, vol. 31, issue 4, No 2, 953-979

Abstract: Abstract This paper analyzes how differences in countries’ preferences for public goods affect the stability of coalitions. In a three-country framework, we show how heterogeneity in public goods preferences can shape countries’ decisions to sign up for capital tax rate harmonization agreements (partial or full). In the context of asymmetric preferences, we identify situations in which these discrepancies make harmonization either cost-effective or harmful. We find that countries with similar preferences have an incentive to commit to capital tax harmonization. However, partial harmonization is only stable if the difference in preferences with the outsider is relatively large. A sufficiently high level of capital supply is also required to limit the effects of tax competition on the outsider.

Keywords: Tax competition; Tax harmonization; Public goods; Heterogeneous preferences (search for similar items in EconPapers)
JEL-codes: H2 H7 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Tax competition and harmonization where tastes for public goods differ (2023)
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DOI: 10.1007/s10797-023-09781-1

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